For the good of the people, and the brand

Ethical sourcing makes for a better business proposition

BY DENISE DEVEAU

THERE is no question that a growing segment of the population is scrutinizing the ethics of retail practices—from product sourcing and manufacturing to labour and environmental sustainability. Ethical sourcing has become a watchword of the day as consumers hold retailers accountable for a widening scope of issues.

Social media has become a powerful influencer in this regard. An exposé of labour abuse in a far-flung country or a tainted food shipment that slipped through the cracks, can quickly turn consumers to competitors for goods and services.

“Ethical sourcing is getting to the principles and issues of trust,” says Joe Solly, leader in Retail Practice for Deloitte Canada. “At its core is basic compliance of the law of the land and a high respect for the human rights of workers.”

In recent years, ethical sourcing has expanded to encompass additional social and environmental factors, such as inclusion, women in the workforce, climate risk, use of resources, carbon footprint, lifecycle analysis, chemical usage, and sustainable agriculture. These are not things that retailers traditionally considered.

“When you get into levels 2, 3 and 4 of the supply chain, retailers haven’t necessarily been attaching purchasing power to it,” Solly says. “But they are learning through soft law and social networks and starting to care. Consumers become engaged, especially when they see horrifying pictures of human rights violations. Talking about a turtle with a straw in its nose for example led governments and retailers to ban them.”

As retailers continue to optimize and improve their Tier 1 of supply, they now have to extend that effort to the Tier 2 level and beyond. It’s a task that requires a lot of visibility, transparency and tracking, Solly explains. “We are seeing more than just signing off a supplier code of conduct. Now there are more expectations to prove everything you agree to, and to provide evidence of the process, challenges, incidences and resolutions.”

A movement on all retail fronts

Tim Reeve, President, Reeve Consulting in Vancouver sees movement towards sustainability in all retail sectors. But there are leaders and laggards. He counts fashion and grocery among the leaders at this point.

“Myriad issues—labour, greenhouse gas emissions, climate change—are driving a lot of this activity. Engagement with customers and expectations around transparency are also being driven by their peers. No one wants to fall behind.”

Some innovation agendas are very aggressive, he adds. “In some cases, it may be driven by efficiency and cost savings. In grocery, consumer packaging is getting the spotlight. For a long time, fashion has been targeting the human rights side. Look at Patagonia, lululemon, North Face, Nike, and MEC for example. HBC has long had ethical sourcing and social compliance programs.”

The voice of the younger generation

Young millennials and Gen Z are becoming an increasingly powerful force in this. A 2017 survey from Cone Communications shows that 94 per cent of Gen Z shoppers said companies should address urgent social and environmental issues. Millennials stood at 87 per cent.

“Gen Z and millennials are pushing sustainable agendas very heavily,” says Myles Gooding, National Retail & Consumer Leader at PwC Canada. “In a recent global study comparing Canada to other countries, we see Canadians demonstrate much stronger feelings about ethical/sustainable sourcing than the U.S. They also say that it does influence buying decisions.”

The PwC study also found that 33 per cent of Canadians are willing to pay a premium for items ethically sourced or sustainably produced. While there has been a gap between intention and actual behaviour in the past, that gap is now closing.

Ethical sourcing is becoming the DNA of consumer buying behaviour, Gooding notes. “If you aren’t making serious strides in addressing the issue, you will be bought. It’s really becoming integral across retail and the supply chain where companies are interacting. Governance in business models is not just a nice to have. It fundamentally drives the value of the company.”

Building momentum at MEC

Mountain Equipment Coop (MEC) has had a sustainable agenda for decades. Ethical sourcing is an integral part of that, says Samantha Kuchmak, MEC manager of Social and Environmental Responsibility in Vancouver. “Being a cooperative, we made a promise to our members that we would look at suppliers to understand where our products were coming from and the conditions in which they were made. Our members have always held us to a high standard. It’s part and parcel of the way we do business.”

MEC introduced its first supplier code of conduct in the 1990s. In 2012, it was updated to align with the Fair Labour Association’s (FLA) benchmarks and principles. It has also worked with bluesign®, a traceability system that promotes responsible and sustainable manufacturing of textile products to reduce their environmental impact.

Another important guideline is the UN’s International Labour Organization (ILO) that addresses child and forced labour issues. MEC’s auditing ETHICAL SOURCING program for facilities making their products (they currently work with 71 factories in 13 countries) is accredited by FLA.

As part of its commitment to transparency, MEC lists all its partners online. “We are constantly getting questions from members and advocacy communities about where we bring our products from,” Kuchmak says. “People want to know what the brands are doing beyond Tier 1 facilities. What about the farmers and growers that produce raw materials? If we work with organic cotton, are we looking at Fair Trade?”

Fashion first

The fashion industry is often highlighted as a segment that is at the forefront of ethical sourcing initiatives. “Fashion retailers have their own design and product development which makes them accountable all the way through the supply chain, including where products are going to be manufactured and the sourcing of raw materials,” Gooding says. “At the end of the day, it’s their product so they are held accountable, especially if it’s their own or a private label.”

The devastating Dhaka garment factory collapse in 2013 in Bangladesh was one of several events that brought the ethical sourcing issue to the forefront for retailers. Another is the realization of its impact on global warming. A 2018 Quantis study called Measuring Fashion reports that the apparel and footwear industry account for eight per cent of the world’s greenhouse gas emissions.

Ethical sourcing is being approached collectively by a number of stakeholders in the sector. In 2018, the Fair Labour Association and American Apparel Footwear Association signed on 140 brands. This is just one of several coalitions. The ALDO Group, for example, has forged partnerships with multi-stakeholder organizations such as the Sustainable Apparel Coalition (SAC), Social & Labor Convergence Program (SLCP) and Sustainable Brands.

“Many footwear companies share the same vendors and suppliers within the industry,” explains Valerie Martin, Vice-President, Communications, Culture and CSR for ALDO. “The long-term sustainability of fashion requires systemic change that goes beyond the capabilities of any one company. We can’t fight this alone and strongly believe in collaboration. It starts with companies selecting vendors that share their commitment towards ethical sourcing and demonstrate social and environmental compliance with a Code of Conduct that meets industry standards.”

At what price?

Many retailers have learned that not sourcing ethically can incur significant brand and reputational risk. Customer boycotts are not uncommon when there is bad press, Solly says. “Nike certainly had their share of that and had to get better at it. The embarrassment and exposure can be challenging.” Investor shaming is another potential fallout, Solly notes.

“Investors are now stating if publicly traded companies are not acting enough on things like social risk, they are demanding they change and drive improvements in the supply chain.”

While things may be improving, Reeve believes there is much more to be done. “What we don’t currently have is systemic adoption. We don’t have best practices but better practices. We’re not even near a tipping point.”

Those at the forefront believe that compliance and sustainability should be second nature. “It shouldn’t be a competitive advantage to be compliant,” Martin says. “This needs to be a joint effort from the whole industry and it should start with the biggest brand names to lead by example.

Being a sustainable company is the future and customers expect this from the brands they love,” she adds. “If we don’t listen to what our customers want and adapt with change, brands will lose customer loyalty and their trust.”

“Ethical sourcing is getting to the principles and issues of trust. At its core is basic compliance of the law of the land and a high respect for the human rights of workers.”

JOE SOLLY
Deloitte Canada

ACROSS GENERATIONS

94%
Percentage of Gen Z consumers who think companies should address urgent social and environmental issues.

87%
of millennials feel the same way.

Source: Cone Communications

33%
Percentage of Canadians who are willing to pay a premium for items ethically sourced or sustainably produced.

Source: PwC